Lack of quality luxury space, environment and dearth of high street or super premium malls is a prime reason for restricted presence of luxury brands in India, thus there is a dire need for modernized and dedicated luxury retail areas in protected vicinities such as airports, according to a recent ASSOCHAM-KPMG joint study.
Setting up stores in high streets affects luxury retailers profitability due to sky-rocketing rental costs, moreover, high streets are very cluttered, crowded and are unsuitable due to the absence of exclusive ambience that luxury retail demands, according to a study on Challenges highlighted by luxury retailers in India, jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and KPMG.
The Indian luxury market grew at a healthy rate of 30% to reach $8. 5 billion in 2013 and is likely to continue growing at a healthy pace of about 20%, and reach $14 billion by 2016 owing to rising number of wealthy people, growing middle class, affluent young consumers and other related factors. Though, India currently enjoys just one-two per cent share in the global luxury market but it is the fifth most attractive market for international retailers.
Fragmented and diversified consumer base in India is another significant challenge being faced by luxury retailers in India as high net worth individual ( HNI) consumers are not easy to reach, noted the ASSOCHAM-KPMG study. Luxury brands need to strategically design their growth plans to tap demand across three categories of HNIs, namely the inheritors (traditionally wealthy) who are habitual spenders; the professional elite who are discerning spenders; a large segment of business giants (entrepreneurs, owners of small and medium enterprises) who have the money but lack appreciation for fine luxury goods because of no prior exposure to such products, it added.
There is a need for luxury brands to focus on expansion in the type and nature of products being offered and increasingly adopt innovative marketing plans to tap rapidly evolving consumer behavioral trends, said Mr D. S. Rawat, secretary general of ASSOCHAM while releasing findings of the study. Luxury retailers need to plan out of the box marketing strategies and come up with products that are tailor-made to suit the whims and fancies of varied Indian customers, said Rawat.
Luxury is no longer a status symbol but is now a lifestyle and the global brands need to fast evolve and learn ways to adapt within the local environment so that they can get accustomed to nuances of the market by understanding the cultural identity of Indian consumers. Lack of policy support is another prominent challenge being faced by luxury brands in India, noted the ASSOCHAM-KPMG study. Despite strong demand momentum, Indian luxury market has not been viewed as policies and regulations friendly for the luxury retailers, the report said.
Import duties (20-150 per cent) are relatively higher and this is considered as a key apprehension factor among the international players, who may resist them to frame aggressive growth plans for India, noted the study. Clauses such as 100% foreign direct investment (FDI) in both single and multi-brand retail requires 30% of local sourcing, announced in the liberalized FDI policy in luxury retail in November 2013 could be difficult for the international luxury players to comply with. The duties are manifold ranging from customs duty, counter veiling duty (CVD), special additional tax, education cess adding to the overall cost, said Rawat.
Besides, luxury retail is also affected by the system of maximum retail price as it applies to custom duties and to cascading after the custom taxes, thereby heavily penalizing foreign brands pushing their overall entrance costs by up to 40%. Lack of trained staff is another well-acknowledged challenge facing Indian luxury retail industry which requires greater discretion and knowledge on the part of a salesperson, further highlighted the ASSOCHAM-KPMG study. Shortage of skilled labour for the industry is a major cause of concern as it is difficult to make the local workforce understand the heritage and legacy of the brand along with the specific finishes involved in the manufacturing process, said Rawat.
In the absence of these requisite skill sets, brands have no option but to manufacture in their country of origin; lack of skilled workers can also be attributed to the sales function where presentation and interpersonal skills form an integral element for the business. Growing prevalence of counterfeit luxury goods and a grey market are also hampering the growth of the industry, noted the ASSOCHAM-KPMG study. Most of these products belong to segments such as apparel, perfumes and accessories, which are usually lower ticket items and can be easily placed in grey channels.
Luxury players in India continue to face supply side issues such as legal loopholes pertaining tointellectual property rights, inadequate means to monitor various emerging channels, and a growing number of online portals, among other factors, the study added. A collective, industry wide effort is likely to have a far-reaching impact in dealing with the issue as seen in other industries such as films and music. Awareness and collaboration also needs to be built with authorities, who have experienced major revenue losses due to loss of taxes and duties, on how to deal with counterfeits, further suggested the study to counter the growing menace of counterfeit luxury products.
Corrective measures need to be taken to banish the growth of grey luxury goods market in India which results in sizeable revenue losses for firms, said Rawat, and added that a strong legal structure combined with effective framework of intellectual property protection would help prevent dilution of brand image and reduced consumer trust. Measures in form of effective intellectual property enforcement, plugging loopholes in the legal and judicial structure and higher conviction rates can help curb the growth of fake luxury products, said Rawat. Information collected through secondary sources such as internet and local newspapers¦